Macy's eyes redevelopment for State Street store

Macy's flagship State Street store, the focus of holiday traditions for many suburban families, might scale back its retail space as part of a redevelopment project.

The retailer said Wednesday it is considering redevelopment for the 12-story, 1.3 million-square-foot Chicago landmark, as well as for flagships in Manhattan, San Francisco and Minneapolis.

"The company has begun a process to explore joint ventures or other deal structures with third parties to redevelop Macy's flagship real estate assets … in a manner that maintains a robust Macy's retail store presence while also bringing alternative use into those buildings," Macy's said in connection with the release of its quarterly earnings.

Macy's said it will look for deals "where the business is simultaneously enhanced … or where the value of real estate significantly outweighs the value of the retail business."

There was no word on the outlook for features like the Walnut Room, where generations have dined under the Great Tree each Christmas. The iconic Marshall Fields until it was acquired by Macy's in 2006, the store also is known for its Tiffany mosaic ceiling and holiday window scenes. This year's window display, "Santa's Journey to the Stars," opened last weekend.

The State Street building is recognized as a National Historic Landmark and listed on the National Register of Historic Places.

Cincinnati-based Macy's said it has abandoned, at least for now, the idea of spinning off its real estate holdings into a real estate investment trust.

Looking to the holiday season, Macy's CEO Terry Lundgren said markdowns are likely as falling sales have left the department store with too much inventory.

Sales for the Cincinnati company fell 3.6 percent at established locations for the three months ending Oct. 31. And for the last three months of the year that encompasses the critical holiday shopping season, Macy's expects sales to fall between 2 percent and 3 percent from a year ago.

Lundgren was dealt a setback when unseasonably warm weather and slow mall traffic hurt sales of fall goods like coasts and boots.

"We're going to take markdowns," he said during an interview on CNBC. "Consumers are going to have a field day because we're going to have lots of values out there."